Why does my check show 20% taken out when I owe more?

Plans must withhold 20% federal tax when they pay a 401(k) distribution to you instead of rolling it over. The 10% penalty and any tax above 20% are settled when you file, so many people are surprised by a bill the following April.

What is the Rule of 55?

If you leave your employer in or after the calendar year you turn 55 (50 for qualified public-safety workers in governmental plans), withdrawals from that employer's 401(k) are free of the 10% penalty. Rolling the money into an IRA first loses the exception, so withdraw before rolling over.

Are there alternatives to cashing out?

Roll the balance to an IRA to keep it tax-deferred, take only what you need instead of the whole balance, use the $1,000 emergency exception, and check hardship programs, unemployment benefits and creditor hardship plans first. A Roth IRA's contributions (not earnings) can come out tax- and penalty-free.

Free calculator · 2026 rules

What does cashing out your 401(k) really cost?

Taxes, the 10% penalty and its exceptions, and the amount you need to withdraw to net what you actually need. No account, nothing stored.

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Amount to withdraw ($)…or cash you need to end up with ($)Your age todayAge you turned (or turn) in the year you left this employerFiling statusOther taxable income this year ($)StateState income tax rate (%)

ExceptionsUse the $1,000 emergency expense exception (once a year)I am a public-safety employee in a governmental plan

Assumes a pre-tax (traditional) 401(k) and 2026 federal brackets with the standard deduction. Some states add their own early-withdrawal penalty. This is arithmetic, not tax or investment advice.

401(k) withdrawal questions

Why does my check show 20% taken out when I owe more?: Plans must withhold 20% federal tax when they pay a 401(k) distribution to you instead of rolling it over. The 10% penalty and any tax above 20% are settled when you file, so many people are surprised by a bill the following April.
What is the Rule of 55?: If you leave your employer in or after the calendar year you turn 55 (50 for qualified public-safety workers in governmental plans), withdrawals from that employer's 401(k) are free of the 10% penalty. Rolling the money into an IRA first loses the exception, so withdraw before rolling over.
Are there alternatives to cashing out?: Roll the balance to an IRA to keep it tax-deferred, take only what you need instead of the whole balance, use the $1,000 emergency exception, and check hardship programs, unemployment benefits and creditor hardship plans first. A Roth IRA's contributions (not earnings) can come out tax- and penalty-free.

What does cashing out your 401(k) really cost?

401(k) withdrawal questions

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